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The CEOworks Team June 2 2020 46 min read

The Cost of Fundamental Misalignment

Welcome to our Team Talks Series. Candid conversations on current events recorded on May 13th, 2020.

This week, the three CEO Works co-founders discuss the ongoing dance between optimism and realism, the three drivers of misalignment, and the opportunity in this crisis to shatter rules and fast forward your company.

Watch the complete 40-minute video or read the transcript for details.

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Sumeet Salwan:

At this point [in] time, as a human capital talent service firm (whether it’s Sandy, Shefali, myself, Hein, Bill, Dan), we are probably touching close to a hundred companies simultaneously. If we think about this whole piece of “change hits, value shifts, and talent gets disconnected” ... and you marry that with the fact that CEOs are simultaneously looking [at] an effective shutdown, looking for lead indicators on [when] the re-open comes, and simultaneously thinking about where is the new alpha in all of this. Rather than go conceptually, what we are privileged to do right now is to go company by company.

A very interesting thing I’m seeing through all of this is what I call “the cost of alignment”. Everybody is making assumptions about the world. People are making an assumption [about] what’s going to happen, how much [things will go] down, [for] how long. It’s all assumptions based on a worldview, based on facts.

If you think about all the world leaders.... [they] have the world’s best economists, the world’s best medical people. Look at the variability in the decisions they are [making] on the same virus with the world’s best information. The same game is getting played out in the life of a CEO and the ecosystem around the CEO, which is the owners or the shareholders, the executive team, the employees, and the communities. If you take that ecosystem, they’re all coming from a set of assumptions. What we are learning by going company by company across 30, 40, 50 different organizations simultaneously is the cost of alignment.

I don’t know, Sandy and Shefali, what you think about that. The effort that a CEO could take in moving fast while continuously [viewing the dance floor] of these assumptions [from the balcony] and counting that cost of alignment.... It also tells me this is a great time to be a human capital practitioner. What’s that saying about being a hammer and the whole world is a nail?

Anybody who’s in the strategy business is playing dice right now.

The superpower that we, as human capital practitioners, bring is this ability to look at this problem from the human angle. Look at it from our own confirmation biases. If you believe that human beings look for data to support their beliefs, [then] there has never been a better time to look at your belief systems and say, “Let me see what my belief systems are as I lead [people] through [this]....” So I find it to be, as a human capital practitioner, a fascinating time.

I hope this never comes in my lifetime again...but it is a fascinating time to learn. And for us, as human capital practitioners, [it is a time] to connect our talent [with] scientifically looking at these human processes and connecting them to value. Because a lot of value is leaking. Because the ecosystem is not aligned and people are coming from different assumptions.

Sandy Ogg:

That’s my kind of thinking.

Shefali Salwan:

Sumeet, when are you going to come to the role of human capital? Yes, I am the hammer looking for that nail perhaps.

[And] people have talked about the elevation of the CFO and the CHRO through this. As we went through the shutdown and thinking about what that means, everybody started looking at cash and cost. The CFO suddenly was in five-hour conversations with the CEO—every day.

And then, of course, the human capital practitioner [was there too]. There were some highly tangible things that you had to think about [like the] safety and health of the employees or your own self.  I know [of] a management committee where one really critical role is being done by a person who has immunodeficiencies. So, from a COVID perspective, the first thing you start thinking about is the health and safety of your team and what your business plans are [in terms of] continuity. Then it is all about the intangibles of making people be aligned in this kind of a space, emotionally be together as a team. But [it is] also [about] the cost of alignment.

We suddenly have an experiment going in real time, where we can look at value leaking because of [lack of] alignment or assumptions being different in a team or in the ecosystem. So it is quite amazing to see the intangibles and the tangible aspects of human capital play out.

Sandy:

Sumeet and Shefali, as we’re working our way through company by company, [we are] watching people expose their set of beliefs as this is unfolding. I even see it here in the house, where we have different beliefs between our kids [as shown by] how they are responding to this crisis situation themselves. When we look at the managers in these companies that we’re working with, they're sitting with this set of beliefs which cause them to underestimate or overestimate certain things.

If the beliefs are off by a lot, then it can be fatal for the company.

If you underestimate the down...I think most people, at this point, have some data and so forth to deal with the down. But initially they had to forecast what they thought the down was going to be and that was rooted in a set of beliefs. We needed to find a way to help them as an individual, but also as a collective in the management team, to put those beliefs out on the table. Because if you don’t have that set of beliefs and the collection of shared beliefs [explicit], you can end up with a very serious underestimation of the impact that it’s going to have. We’ve seen a lot of that: they underestimate how long it’s going to last, and then they overestimate how much it’s going to bounce back. And those down, across, up sort of describe the cost of COVID.

So if we [can] see the cost of COVID, then the question is how realistic is it? And trying to understand the optimism that is rooted in people’s beliefs about it and the kind of information that they’re getting and that they’re using. So we’re watching now, people are getting better at seeing how far it’s going to go down. People are beginning to get a sense of how long it might last. And I think most people that we’re talking to are still underestimating...or overestimating, rather, how much it’s going to come back. In the workshop this morning, Sumeet was asking, “Is it actually going to come back this far?” And you could feel the resistance in the team to the question. “Hey, wait a minute. We have a set of beliefs, and we want to be optimistic about this.” And I think people do want to be optimistic about it.

Sumeet:

Isn’t it interesting that, in these last four weeks, we have done a mobilization effort across 23 companies. And that only one company said that this might be an L. Everybody thinks that by 2021, Jack is back. And I’m thinking, “I’m not an economist, and I’m not a medical expert. I read the same newspapers that everybody [else] does.” I find it interesting that the energy has shifted from this is going to be a quick wave over eight weeks because China shut down on the 19th of January and opened on the 19th of March, the day before the Chinese New Year Day. So it’s [going to be] eight weeks. It’ll be 10 weeks. It’ll be fine.

But this whole thing of the medical wave, the economic wave, and, God forbid, a social wave...I find it interesting that people almost need to and want to believe. And maybe it’s true. I’m not saying it’s not. But the fact that 22 out of 23 CEOs are saying, “It’s all going to be okay in ’21. I have to now go through an extended eight, nine months of pain and manage this year. Can I write this thing off and say that this year didn’t exist, 2020 didn’t exist?”

I see [over] the last eight weeks, some amount of optimism has got washed out and there is realism coming in. But even now, I think maybe human beings need that whole feeling of it’s going to be all right. The question running through my mind is, “Is there a cost of alignment here?” Are we setting ourselves up for a surprise eight months down the line [by] saying, “Well, it’s not a long backstop and a U which will come back. It’s probably an L, and I need to design my efforts [for] bending this L curve up with a new alpha energy, as opposed to a cost energy.”

We have done 200 meetings [with] chairmen, CEOs, executive teams, across 23 companies in the last four weeks. And I find this pattern fascinating, that irrespective of industry and geography, there is still almost a human need [to believe] that it’s all going to be all right.

Shefali:

I do feel that we have to hold on to something which gives us...I wouldn’t say optimism...but to feel that, yes, that some things will be okay. Otherwise, it’s going to be really hard to live.

However, a lot of us have also been taught that in leadership. We’ve been taught that you can only worry about things that you can control. Don’t worry about other things. For decades, that’s what we’ve taught our leaders. So I wouldn’t be surprised that people are saying, “Okay, I can’t change the medical world, or I can’t create a vaccine, but what can I do? What can I do to bend the curve for my company?” And that’s what, in a sense, they believe they’re paid for as well.

One or two of our clients have actually pushed back on us and our stuff saying, “But this is my job as a CEO, to hold onto our beliefs, our plans, and nothing is supposed to be easy.” I remember somebody saying, “That’s why I’m paid. This is part of my role.” So in a sense, we've probably taught people that kind of leadership.

Sandy:

I think the V was an expression of optimism. It’s going to go down, and it’s going to come back. The U is an expression of optimism, in that are people systematically overestimating how much is going to come back and when it’s going to come back.

Do we see a difference between people who are managing in a public-markets context where the game, in many ways, is a relative game? How is this business doing relative to that business? In a private-capital game, where you’re looking much less at how this business is doing relative to another business, you’re looking at how this business is doing relative to the value agenda that was established.

[In] some of the businesses we've been working with that are both public and private, the CEOs say, “Well, listen, relative to all of our peers, we’re crushing them. And look at our share price.” And then the private owners say, “Wait a second. We put the money in. These were the kinds of returns that we wanted, and based upon the shape of this curve, we wiped out this much of the value that we were looking to create. And how quickly are we going to be able to get that back?” Two different contexts.

And it’s interesting to look at different management teams and how they think about cost, how they think about cash, how they think about capability. In one instance, if I cut this cost, my capabilities are going to go down. Or if I understand where the value is, I can move this cost and make it fuel for growth over here—if I’m willing to move it. If I’m not willing to move it or if I’ve got a set of beliefs and an unhealthy relationship with cost (“Hey, I’m not touching my cost, I’m not touching my this, I’m not touching my that...”) as opposed to [looking at where the value is and where it is shifting] (“Hey, wait a minute, where is the value and where is it shifting, and how do I move cash, cost, spend from one area to another?”)....

Change hits, value shifts—and how do I redeploy it [cash, cost, capability], and how do I do that in a fingertip feel kind of way?

I think it’s interesting watching the way different teams are responding. What is the cost of alignment? And also what is the cost of your bumping into a belief that is holding you there? We are seeing people break through it. It’s fun to watch them break through it, and [to see] how quickly then, people want to kind of take the breakthrough and immediately begin a planning/tracking kind of energy on the thing. It’s good to track it, but you want to make sure you’re tracking the right thing. If we’re tracking something and it’s built on a belief that is just wrong, then big mistakes can be made.

Sumeet:

You’re absolutely right, Sandy. The strands of this conversation which have the cost of alignment as a theme... [one is] the inherent optimism that a leader needs. You became a CEO because you were an optimistic person, and you had the ability to bend this world or shape this world by the force of your will. We talk about shaping the curve. There is a certain belief in self: [an] “I can turn this thing” optimism. It is [in] the DNA. All of that will be required in this crisis, [just] like [in] any other crisis. It is one thing of the conversation for me.

The other one [in] this whole area of cost of alignment is you’re not in this thing alone. There are two things which are unique. It’s the same ecosystem. The first one is the very divisive demands. The owners are just, “Let’s think of our value creation and what got wiped out.” And the markets may be thinking about relative. The employees have a whole different safety concern, an employment concern. The governments will have a certain completely different demand. The demands are sharp and big and very different. The second thing is the pace of this whole change. This [Yuval] Harari comment we saw today that...I can't remember the exact one, Sandy and Shefali. Something about...

Shefali:

Change is accelerated.

Sandy:

...the world went into fast forward.

It’s a short window of opportunity in which history is moving into fast forward. It’s accelerating.”1

— Yuval Harari

Sumeet:

Normally, when you have an alignment gap, things work in slow motion. The value leaks slowly. If you take a live frog and you put it in boiling water, it jumps out immediately. But if you put him in cold water and you increase the temperature slowly, it just kind of stays there. That's how alignment normally is: it slowly leaks out value until it’s too late.

This time, I feel the alignment gaps are huge, and they are fast. Therefore, the cost of alignment is big. You can’t let it drift for a while and then catch it and bring it back. You have to be structured about it. You have to go at it with expertise and not with a touch-and-feel management while walking around. And by the way, you don’t do that [management while walking around] on Zoom very well. So [it’s important to have] a structured due-diligence process for looking at these alignment gaps, because they are working in warp speed and they are larger than ever before.

Seeing this across these 30, 40 companies has been personally a really fascinating experience from a learning point of view. I also feel a little bit privileged that we have the opportunity to serve not just these companies, but [also] a million-plus employees in these companies by ensuring that, at a point of leverage, we are creating that alignment.

Sandy:

What is the antonym of alignment? Because I’m feeling some dissonance on the “cost of alignment”. The alignment is the benefit. What is this “the cost of”?

Shefali:

It’s speed, Sandy. It’s speed of execution. So what typically happens is if you're not really aligned, there will be passive-aggressive behaviors which will come [into play]. Think about your sponsor in the ecosystem. If the sponsor and the CEO are not aligned, they’re not talking about it, and the role that you guys are playing is to surface that, if it isn’t done the way we are doing [it], the CEO would nod their head and not do perhaps what the owners or the sponsors or the shareholders want them to do in time.

Sandy:

Time is the result.

Lost time and speed are the outcome of the lack of alignment.

Alignment is what we’re looking for, but when we say “the cost of”... It’s [actually] the benefit of alignment. But it’s the cost of something else. There’s some dissonance in there. And I know dissonance and alignment are not the same... They're not the opposite of one [another] ...

What is the opposite of alignment? Misalignment? But misalignment sounds dorky. What is it that we’re bumping into?

Shefali, we have a clash of beliefs that are rooted in different stakeholders. “Hey, I am making a set of assumptions about NIIT.” “I am making a set of assumptions.” “I am making a set of assumptions, et cetera, et cetera, et cetera.” And to Sumeet's point, these things are fractured and dissonant. And then when we’re able to create alignment, then you go, “Whoa! All right, now we’re seeing the picture in a very similar way.” Now, all of a sudden, the world has gone fast forward—and your company can go fast forward.

Shefali:

I don’t know, from a language perspective, what that word is. From a physics perspective, it's the extra force that you get with... I’m laughing because I’m thinking of that movie, "[May] the force be with you.” It’s really interesting, this belief word... For the last eight or nine years, that’s all the work I’ve done, around surfacing beliefs.

We often say that human beings [are] like an onion. And the core of the onion is identity and values—and that’s not something that we change very easily.

But the beliefs are the “rules” of the values. And we can change [them]. I'll give you an example. If I thought my value is that I have to be a great mother, chances are I’m not going to change that value. But what are the rules of being a good mother? When my kids were really young, I would say, “Between three and six, I won’t work because I want to be with my kids.” And that’s exactly what happened in my life. That was a rule, a belief that I put on a value. When my kids were teenagers, if I wanted to spend three hours with them in a day, they would probably kill me. They barely spent 15 minutes with me. So I have to change my definition of how I’m going to measure my value of being a good mother.

The energy loss...when we talked about speed, there’s a lot of exhaustion which happens when two beliefs are fighting. You’re thrashing around. You’re fighting, and you might not be fighting like the way kids fight. But that’s exactly what you’re doing. You’re holding onto your ego and your beliefs. There’s a lot of energy loss, which doesn’t help [either] the organization or the human being.

Sandy:

I think this is what we’re watching.

Harari is saying that when the world moves into fast forward, all of a sudden, there are beliefs that are shattered.

For example, [in] a university that has been talking about online learning, there’s a whole collection of people who have been holding beliefs that say, “It’s not so great, and we need the interaction, and I don’t teach that way,” ...which are these “rules”. These rules are guiding everyone. Now all of a sudden, there’s no option. We cannot go into the classroom. So that whole thing is shattered, and you get a fast forward. The whole university goes online in two weeks. Boom! Fast forward.

All of these are opportunities. So what we are tapping into here are, as we go kind of cash, cost, and so on, and we have those sliders, we’re asking them, “What are the rules, and what are your beliefs?” And when they say, “Oh, look, we’ve moved over to here. We have decided we’re going to over-communicate to our employees.” Under normal circumstances, you’re not going to communicate to people every single day about whatever. “We are going to be much closer to our customers.” “We are not touching our employees.” It’s a rule. It’s a belief.

Shefali, you’ve said what I have been feeling as I’m walking through this. People are saying, “We should do these workshops because I’m sitting here, looking at this, and I see a set of beliefs that are going to really hurt us. Those beliefs are going to cause us to take action.” And no review meetings or this or that are going to shift [anything] until you have addressed the beliefs in these different areas.

“What we've done is to shut down.” “Okay, what is your belief about cost? What is your belief about cash? What is your belief about customers?” Then giving them a chance to express it. And then what we trying to do is shift it. So I think what Sumeet has called the cost of alignment...

Sumeet:

Misalignment. Let’s call it the cost of misalignment.

Sandy:

We need to find the right word...belief is a word that is going to cause people to freak out. There is a misalignment there, and these are fundamental misalignments. And I don’t know what exactly we want to call that. But to the extent that we can demonstrate shifts in those things...

Sumeet:

That’s valuable.

Sandy:

... and what should follow. And I think we’re seeing evidence that it is following, you begin to see these “fast forward”. And so what we should be aiming for in this, Sumeet, is [to be able to] take this fast-forward thing and, to the extent that we are able to fast forward a cost belief, what is that worth?

Sumeet:

You have to be able to count it.

Sandy:

When the world is not in a fast forward, if we can bring this into our practice when we talk about aligning on the value agenda, it’s going to have a whole new meaning to us. Because the COVID workshop or the rapid mobilization workshop is a value agenda workshop, and we’re exposing all of this misalignment. Maybe, Sumeet, it’s the cost of fundamental misalignment.

To the extent that you can shatter a belief, you get a fast forward.

Sumeet:

In this cost of misalignment, there are three big drivers that come to my mind. We have currently hovered over two of them.

  1. Number one is a set of beliefs that highly successful leaders will have. Optimistic beliefs, the ability to bend the world and shape the curve by the force of your will, has been a huge source of success. To me, that is a source of misalignment.
  2. The second one is very, very different and divisive demands on the ecosystem at a fast pace. I think those two we have talked about.
  3. There’s a third piece here, which is the misalignment of incentives. What are the incentives of a political leader to open or re-open the economy? And sometimes real action versus safety could be an incentive which drives a certain action. What are the incentives of a CEO, an owner, an employee? I think there is something in the game of incentives.

As a human capital practitioner, this misalignment has to become only a software issue. Let’s get people to talk, make these things visible, and give it speed. I think there are some hardware elements that have to be looked at [as well], and incentives is one of them. I think ways of working, and I’m moving into the solution space. Ways of working.

Shefali:

That is fast forwarded.

Sumeet:

If you were running your company in a command-and-control hierarchical way with a board which talked to the people and you now need to suddenly move to an innovation hack-a-thon kind of energy and talk to 50 people together and create a war-room energy, that’s a hardware solution to this thing. You’ve gone from a peacetime bureaucracy to a war-room energy.

What I am looking forward to in the next few weeks is we’ve touched upon something which in our practice of taking talent, organization, energy—all the things that we have worked with for 30 years in HR—and connecting them to value. I think in COVID we have found something about looking at alignment and connecting it to value.

There are these three drivers of misalignment: the divisive demands, the CEO beliefs or the big beliefs of the people, and things like incentives.

What will be really interesting looking forward is what should we do about this, both from the hardware side and the software side. Not just from the, “Let’s all talk to each other and make sure that we are aligned.”

Shefali:

I just want to make one comment. We are not robots. We are human beings. What inspires us is much more powerful.

If I’m a microcosm for many other human beings, when I’m seeing all this, I also want to look at that opportunity. That’s what gives me energy.

To read trends, to say that innovation is going to happen differently, or the fact that women leaders, for the first time, will have a more fair playing ground because they might not be willing to travel as much. That is much more motivating for me: to see all the positive things that can happen out of this whole crisis. I force myself every day to look for opportunities, even for my own business, because I need both. I need to, yes, look at cash and cost. But I also want to be highly energized with something which I believe is good for the world.

Sandy:

To me, there are two things that have come out of this conversation that are potentially explosive in a positive sense. One is this notion of the fast forward and that, when a crisis hits, some of these basic beliefs and rules of living, rules of managing, get shattered. And it creates the opportunity for fast forward. It is a speed thing that is like [going] to warp speed.

Then the second thing is, Sumeet, this thing about the cost of misalignment and the drivers of it. As you were going through and describing [it], there are these beliefs that sit in the person, then there are these divisive demands at a fast pace that are coming in, and then there are the hardware elements, like incentives. And I couldn’t help myself. I went to the RoleTalent Card and said, “Wait a second. Divisive demands sounds like Jobs To Be DoneTM. Beliefs sounds like talent risk. Incentives and decision rights sound like role risk.” This is like [a] COVID-specific RoleTalent Card.

Is there something here that we have in the CEO role? The risk is not just with the CEO. It is that their role has gone into fast forward. And, therefore, the demands on them, the Jobs To Be Done have become much tighter, much more focused. We’re not going to change them in this period. So what is the talent risk that we have? It’s their beliefs. It’s the rules that they’re using to decide how they’re going to spend their time. And what is the role risk? The role risk is we have created a misalignment of incentives, and we probably also have a decision rights problem because decision rights get sucked up right out of the CEO up to the PMC. “You can’t decide this until that. And you can’t decide that until this.” And we’ve completely changed these rules as a result of the fast forward.

Shefali:

It’s interesting that, as human beings, we need a frame. Look at what Sandy did just now. He went to a frame. I just find that fascinating, because that’s exactly what hopefully we are trying to give through that exercise of the alpha.

Sumeet:

I completely agree with you, Shefali.

You need a frame to make sense of the world.

If I use your Six Sigma analogy, I think the last four weeks and 23 companies and 250 meetings have been about making the defects visible. We have made this defect of [mis]alignment visible in full, living Technicolor. As I look forward, I think we’ve got to do something about this and, of course, fast. Because the cost of misalignment is huge. I think it’s time to pivot to the “so what” and do it in an energy-efficient, ecological, precise manner, as opposed to some giant thing that nobody has the time for. Can you imagine trying to solve a time-to-value problem by sucking time from people? That sounds crazy, right? So I think that should be a defined task as we look forward here, saying, “I’ve understood the cost of [mis]alignment and where it comes from. It’s time to do some Value Coaching.”

Sandy:

The role of the CEO just went into this fast-forward world.

Sumeet:

The point about time to value... yes, should we run an engagement survey to see who’s misaligned? Should we try and coach the CEOs? It’s a slow path to value in today’s world. You have to come up with a Formula One, high-speed, precision version of solving this.

Shefali:

I’m a big believer in the fact that the old paradigm of leadership is going to change. 

And what I mean by that is that no one person has all the things we are asking from them. The conversation is, “Okay, you’re not going to be able to move some of this, but complement yourself with somebody...and almost think about two people leading this organization than one.”

This paradigm of leadership, the one we use for all our work globally, is a very Anglo-Saxon definition of leadership. It’s leading from the front, but that’s not the [only way]... The Asian philosophy is herding from the back. The definition of leadership itself is different in different parts of the world.

Maybe there is a paradigm shift on what is a leader. Maybe it’s two people instead of one.

Sumeet:

It’s absolutely possible. My sense is one person is going to get overwhelmed by all this. I don’t know if it’s true. But I think you might be onto something...that it might become a team sport versus an individual rock star.

Sandy:

These are big, big things. We’ve got to make hay on this fast forward. When those beliefs get shattered and the thing goes, you have to take advantage of it. And then the real cost of misalignment. And there are software, hardware, roletalent. There are real risks in this. And this incentives stuff. If we can find a way to do a RoleTalent Card super-light, super-fast...because right now people are not going to slow down as much as we want them to on it...and provide a useful thing that helps people through this.

Shefali:

It’s very exciting....


1 Lulu Garcia-Navarro, “A Historian Looks Ahead at a Post-Pandemic World, NPR, April 5, 2020. Accessed May 20, 2020 at https://www.npr.org/2020/04/05/827582502/a-historian-looks-ahead-at-a-transformed-post-pandemic-world.

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The CEOworks Team

Articles created by the CEOworks Communications Team are based on content from Sandy Ogg, Sumeet Salwan, Shefali Salwan, and other team members.